A division bench of the Delhi High Court, while considering a complaint against a Company for non-filing of income tax returns, has held that a “Director” cannot be treated as the “Principal Officer” for the purpose of section 2(35)(a) of the Income Tax Act, 1961 and cannot be prosecuted for the offence of failure to furnish returns of income under section 276CC of the Act.
The Income Tax Department initiated prosecution against the Company and the petitioner, Mr. Vipul Aggarwal for the offence committed under Section 276-CC read with Section 278E.
The main argument of the petitioner was that though he is a Director, no offence was made out against the present petitioner, as he was not responsible for the conduct of the business of the company.
After perusing the facts and the relevant provisions of section 2(35)(a), the bench observed that “the Principal Officer is not equivalent to a Director, nor is an “agent” an equivalent of the Director. Even though in certain functions the Director may act as the agent of the company, for the purposes of Section 2(35)(a), the agent of the company cannot be treated as a Director of the company precisely for the reason that there is a separate definition for a Director and had the Director to be included per se as a Principal Officer, nothing prevented the Legislature from including the Director in Section 2(35)(a) of the IT Act.”
“Thus, the sanction is specifically to institute a criminal complaint against the Company M/s ASM Traxim Pvt Ltd. It is crystal clear that the sanction has been accorded for the prosecution only of the “person” named as the “assessee”, namely the Company M/s ASM Traxim Pvt. Ltd. There is no sanction qua the petitioner, even as a “person” being a director/being responsible to the conduct of the business of the company. It cannot be held that the observation in para no.10 of this sanction, that the petitioner had verified the returns filed by appending his digital signatures, would tantamount to sanction qua him. That would be stretching language too far,” the Court said.
Quashing the order, the Court held that “Since the law provides that without sanction u/s 278B of the IT Act, the Department cannot proceed against a person found liable to prosecute him for the offence under Section 276 CC of the IT Act, the present prosecution must fail qua the petitioner. In the absence of a specific sanction for prosecuting the petitioner, the learned ACMM could not have taken cognizance of the complaint against him and then framed charge against him. The edifice built without foundation must crumble.”
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